Select Sector SPDR-Materials (XLB) PriceWatch Alert for September 5, 2008

Posted on Friday, September 05, 2008 8:07 AM

Select Sector SPDR-Materials (AMEX: XLB) closed yesterday at $37.18. So far XLB has hit a 52-week low of $34.65 and 52-week high of $46.54. XLB has been showing support around 35.66 and resistance in the 39.24 range. Technical indicators are Bearish. XLB appears on the Investors Observer Select ETF and HOLDR list. For a hedged play on this stock, look at a Dec '08 37 covered call (XLB LK) for a net debit in the $34.98 area. That is also the break even stock price for this trade. This covered call has a 106 day duration, provides 5.92% downside protection and a 5.77% assigned return rate for a 19.88% annualized return rate (comparison purposes only). A lower cost hedged play for this stock would use a longer term call option in place of the covered call stock purchase. To use this strategy look at going long the XLB Jan '10 20 Call (WFP AT) and selling the Dec '08 37 call (XLB LK) for a $15.05 debit. The trade has a 106 day life and would provide 5.73% downside protection and a 12.96% assigned return rate for a 45.00% annualized return rate (for comparison purposes only). [For more information on these strategies along with more details on possible risks go to www.iotogo.com/HPWAinfo]